The key to getting control of your finances and achieving financial freedom is having a sound knowledge of where your money is going. It is important to understand what aspects of your spending you have the most control over. With this knowledge you can make amendments for the best possible outcome with the minimal impact on your lifestyle. Living expenses generally fall into three categories; committed, discretionary and lifestyle choices.
Committed:
Your committed expenses include fixed amounts that you have little or no control over and include things like mortgage(s), rent and body corporate fees, rates and income taxes.
Discretionary:
Discretionary expenses include personal loan repayments, credit card repayments, phone and mobile and groceries. Typically you have more control over these expenses and you can reduce this cost by shopping around for a better deal or bundling services.
Choice:
Choice expenses should be the main priority for regular review and tracking to alter spending habits and re-direct your money to specific goals that are important to you such as becoming debt free and building wealth. I enjoy spending money on coffee and this is important to me so I try and cut back on other areas such as weekend entertainment and buying expensive lunches. It’s all about finding the right balance and calculating the annual cost for a given item which helps put things in perspective. If lunch costs $10 per day, five days per week is $50 or $3,640 per annum.
It is important that you stay smart and put things in perspective. Look for ways of reducing discretionary and choice spending. Can you cut back on excessive spending, what is the real cost if you have to work too hard to keep it? What does life look like in 10 or 20 years time and what decisions can you make today that will make all the difference? Get expert help – talk to a professional, someone who is dedicated to helping you build and maximise your wealth. Like any good plan or strategy, it is only as good as regular revision and review.
– Thomas Lynch Financial Planner, ASCK Pty Ltd atf the AMEGAFS unit trust ABN 56428123816 trading as AMEGA Financial Solutions are Authorised Representatives of AMP Financial Planning Pty Limited.
– Any advice contained in this email is of a general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice with regards to those matters.
Thanks to Thomas Lynch for penning this article for us. You can view his profile here.